CA Passes NMLS Loan Originator Licensing Requirements

California recently adopted several mortgage related bills.
CA Senate Bill 36 became effective October 11, 2009 and includes the following revisions and adoptions:

• Adopts new sections covering: 
• licensing requirements for loan processors and underwriters; 
• application requirements including fingerprinting, personal history, and independent credit reports; 
• minimum standards that must be met by mortgage loan originator licensing applicants; 
• pre-licensing and continuing education requirements and testing requirements; 
• license renewal requirements for mortgage loan originators; 
• requirement for mortgage loan originators to include their unique identifier on application forms, advertisements, and other required documents; 
• prohibited acts and practices for mortgage loan originators and potential penalties for violations;
• requirements for submission of reports of condition;
• notification requirements and licensing requirements for mortgage loan originators and real estate brokers; 
• minimum standards that must be met by mortgage loan originator licensing applicants and the minimum standards for renewal of an endorsement as a mortgage loan originator; 
• requirements for real estate brokers to submit annually a business activities report and detailing what must be contained in the report; 
• record retention requirements; and 
• requirement that mortgage loan originators to obtain and maintain a license and a unique identifier and prohibiting residential mortgage lenders or servicers from employing a mortgage loan originator whose license or license endorsement has lapsed.
• Revises current statutes to add or amend: 
• requirement that a licensee's unique identifier be included on advertisements and certain disclosures; 
• requirement that applications for endorsement to act as a mortgage loan originator must be made electronically or in writing as directed by the Commissioner; 
• minimum net worth requirements for licensees employing one or more mortgage loan originators; 
• requirement for mortgage loan originators to obtain and maintain a license and a unique identifier and prohibiting finance lenders or brokers from employing a mortgage loan originator whose license or license endorsement has lapsed;
• that it is a violation for a person to knowingly make a false statement to the NMLSR;
• that mortgage loan originator licenses must be renewed annually after the payment of an annual assessment;
• notification requirements; and
• bond requirements.
• Repeals CA BUS & PROF § 10131.8 and CA FIN § 50705. 
• Section 87 of CA Senate Bill 36 states the deadline for mortgage loan originators to obtain a license.

CA Assembly Bill 329 becomes effective on January 1, 2010. This bill revises the required notice that must be provided to a reverse mortgage loan application prior to the applicant receiving counseling. It also adds a requirement that a lender provide the borrower with a written checklist prior to the borrower's meeting with a counselor, details what must be included in the checklist, and states other checklist requirements.

CA Senate Bill 94 became effective on October 11, 2009. This bill adopts a new section stating what fees and compensation may not be received for loan modifications or other forms of loan forbearance. Senate Bill 94 also adopts a new section stating what acts are prohibited in relation to loan modifications or other forms of loan forbearance and stating what acts are permitted if the person who offers the loan modification or forbearance is offering it for a loan that is owned or serviced by that person. This bill also amends sections to add an exemption for certain counseling organizations approved by HUD that provide loan modification counseling services for no cost to the borrower and to add a prohibition regarding making materially false or misleading statements or representations to a borrower about the terms or conditions of that borrower's loan, when making or brokering the loan.

CA Assembly Bill 260 becomes effective on January 1, 2010. This bill adds that the commissioner may suspend, revoke, or deny issuance of a license for violations of RESPA, TILA, HOEPA, regulations promulgated under RESPA, TILA, or HOEPA, and for violating or failing to comply with Chapter 2 of Title 14 of Part 4 of Division 3 of the California Civil Code. Assembly Bill 260 also adopts new sections stating that any violations of RESPA, TILA, HOEPA, or related regulations will be violations of the California Finance Lenders Law and the California Residential Mortgage Lending Act. This bill also adopts a new section stating that mortgage brokers providing mortgage brokerage services to a borrower have a fiduciary duty to the borrower, stating what is included in the fiduciary duty, and providing definitions for licensed person, mortgage broker, mortgage brokerage services, and residential mortgage loan. In addition, this bill adopts new sections regarding higher-priced mortgage loans stating what the maximum amount is for prepayment penalties, prohibited acts, permissible fees, document requirements, and potential penalties for violations.

CA Senate Bill 237 becomes effective on January 1, 2010. This bill adds six prohibited acts related to improperly influencing or attempting to improperly influence an appraisal.

CA Senate Bill 239 becomes effective on January 1, 2010. This bill repeals CA PENAL § 532f and then adopts CA PENAL § 532f stating what acts are considered mortgage fraud, the related voluntary and mandatory disclosure requirements, and that this offense is punishable by a maximum of 1 year in the state prison or county jail. 

Largest Barrier to Mortgage Company Licensing

I get calls all of the time from companies that are interested in getting away from a net branch company and getting their own mortgage licenses. After hundreds of these conversations, I've been able to reduce the call to a simple question. What is your mortgage company's net worth?

Now you may be thinking that net worth is not a requirement in a lot of states especially for mortgage brokers or is very minimal such as $10,000 to $20,000. You are correct. Most states don't have a very high net worth requirement for mortgage brokers, although a few do. That is actually not why I ask the question, "What is your net worth?" The reason I ask the question is because most states have a surety bond requirement. To better explain this, let me tell you what a surety bond is.

A surety bond involves three parties, the Principal (in this case mortgage companies), the Obligee (the state department), and the Surety (insurance surety carrier). It is an agreement by the surety to be responsible to the obligee for the obligation or conduct of a third party which is the Principal. It is also a way for the states to regulate the licensing of mortgage companies conducting business in their states as a broker or a banker or both. The laws and statutes vary from state to state. When the statutes or laws are broken by the Principal a claim or loss can occur on the bond. The most important thing to remember on a surety bond is that it is not an insurance policy. Whereas, in a regular insurance policy, the Insurer takes all risk and pays out claims, in a surety bond the law seeks that Surety ask for recovery or reimbursement for what surety pays out to handle the claim with the state.

With that being said, basically if you receive any claims on your surety bond, your company and then in most cases the ultimate owners of the company will be required to pay back the surety company. Since the surety may have to go after your mortgage company and owners for the losses, the surety company needs to verify that you actually have the ability to pay them back if their was ever a claim. So they verify the company's and the owners assets and ultimately net worth.

Most surety companies that you talk with will tell you that the maximum they can offer in surety bonds is the net worth of the company. With that being said, now you can see why net worth is so important when you go into multiple states. For example: Let's just say that you decide to get licensed in 5 states. Each state has between a $10,000 to $50,000 surety bond. The total of all surety bonds in the 5 states equals $175,000. If you try to get $175,000 worth of surety bonds, the surety company will ask to see your company's financials to see if your company could pay back any claims. If your company only has a net worth of $25,000, you may have a difficult time getting the bonds. There is one exception, and that is if the owners financials are very good. If the owner has a couple hundred thousand in net worth, the surety companies may look at that as enough to lower their risk of non-payment.

Now despite this being the largest barrier to mortgage licensing in multiple states, surety bonds are hardly ever claimed. Usually companies pay any fines or fees way before they get a claim on their surety bond. The reason is for this is if there is a claim on a company's surety bond, they usually will start to lose their bonds, because no surety company will insure them and they will subsequently lose all of their state licenses. It just doesn't happen very often.

Even though multiple states may not be an option at this time, I do recommend getting licensed in a few states that you do most of your business. This will greatly reduce your overhead and allow you the flexibility to work on your own.

CRL Nationwide Lending

CRL can provide you immediate access to originate loans nationwide while you work with Integrity Mortgage Licensing to obtain licenses for your mortgage company. All licensing for CRL was completed by Integrity Mortgage Licensing and we both highly recommend each others services. CRL was formed as a safehaven for people who want to originate loans nationwide. Their vision has always been to treat people the way that we would want to be treated.







Our industry is in turmoil. Many well established mortgage companies have gone under and taken tens of thousands of dollars with them, money that was owed to hard working originators like you. Other companies are currently months behind on commission payments. We have all been “stung” by situations like this.



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